Educational Articles

Japanese Earthquake’s Impact on U.S. Industries

Research Staff
| March 17, 2011

Aside from the tragic loss of life (the death toll is now in the thousands), the ultimate impact to Japan’s economy caused by the recent disaster is still hard to measure. Power outages, supply-chain constraints, and reduced production capacity continue to take a toll on a wide range of industries. Japan is home to some of the world’s leading car makers, all of which face sizable production disruptions amid uncertain environmental conditions and ongoing power losses. Too, the nation’s consumer electronics and semiconductor companies, long synonymous with quality, have been under pressure, since many had little choice but to suspend operations at several factories and research facilities. To little surprise, Japan’s nuclear sector has substantially reduced output, which is liable to have consequences on the nuclear industry in the United States, and on electric utilities and oil producers more generally. Eventually, thoughts will turn to recovery and the massive rebuilding effort that will follow, which should drive demand for heavy equipment and machinery manufacturers.

From a financial point of view, the primary insurance and reinsurance markets will likely be hard hit by the earthquake, with initial damage estimates in the tens of billions of dollars. Consequently, insurance companies and reinsurers with exposure to the Japanese market may absorb significant losses in the years ahead. Equities markets have also come under pressure, with the U.S. stock market trading down on heightened concerns of a possible nuclear crisis. Although Japan’s benchmark Nikkei average has rebounded slightly after plunging in the immediate aftermath of the earthquake, the nation’s recovery will undoubtedly be a monumental, multi-year effort, and personal consumption will likely decline in the near term. For a more in depth look at Value Line’s perspective on Japan’s crisis, click here…

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.